Financial Decisions
Financial Reporting
Users
Who are the users of the financial statements of public sector organizations?
. . . . .
Bottom line
Financial reporting is a link between
Financial accounting Financial management
The output of the financial reporting process is the General Purpose Financial Statement. It serves the general needs of an array of users.
City
Provincial
Federal
Cash Basis
Mixed
Accrual Basis
The Transition
Cash Basis
Mixed
Accrual Basis
Reporting Framework
IPSAS
Cash Basis
IFRS
Accrual Basis Accrual Basis
When earned
When resource is consumed Equity, Assets, Liabilities, revenue & Expenses Five components More focused on profitability
Components Only one component of FS Focus More focused on Accountability and governance
Which is better ?
Accrual Basis
Cash Basis
Accrual Basis
A basis of accounting under which transactions and other events are recognized when they occur (and not only when cash or its equivalent is received or paid). Therefore, the transactions and events are recorded in the accounting records and recognized in the financial statements of the periods to which they relate.
Example 1
Purchase of a computer system:
Price PKR 5 million Price paid in year 1 Useful life is 5 years
Example 2
Payment of operating lease rental
Rent is PKR 24 million For this year and the next year
Example 3
Electricity expense
Amount is 1 million Paid in year 2 Electricity consumed in year 1
Understand -ability
Constraints
Relevance
Reliability
Going concern
Prudence Consistency
Accounting Principles
Materiality
Undue offsetting
Recognition
Measurement
Statement of Cash-flow
It should include the following :
. . . . . . .
Bottom line!
Public sector organizations need to prepare General Purpose Financial Statements The accounting and reporting depends on the nature of the organization Reporting framework may be cash based, accrual based or a hybrid one Best practice reporting frameworks (IPSAS and IFRS) are based on Accrual Concept IPSAS, the public sector reporting framework, prescribes principles for recognition, measurement and disclosure There are five components of financial statements under accrual basis and only one component under cash basis The qualitative characteristics and accounting principles of accrual based reporting framework are universally accepted by the stakeholders of public sector organizations
Thank you !